Once the excitement of signing an Agreement of Purchase and Sale sets in, a purchaser must meet with their lawyer to ensure all of the legalities of buying a house are met. One thing lawyers often speak about nowadays is title insurance. Many purchasers are unfamiliar with title insurance, what it is, and why one needs it.
To begin – what is “title?” Title is your legal ownership to the land. On the day of closing when the deed is registered, “title” to the property is transferred from the seller to the purchaser. Essentially, title insurance protects your ownership of the land. Title insurance is not mandatory, however it is often required by banks if you are receiving a mortgage, and it is largely recommended by lawyers.
Title insurance is a one-time premium and covers your property for the entire time you own it. The premium is based on the value of the land and the title insurance provider. This premium is generally paid on closing and bundled in with your legal closing costs, however you may get a title insurance policy at any time during your ownership of the property.
The policy covers various title concerns and helps ensure that you receive good title to the property you are buying. The main losses that title insurance provides protection for are losses that occur as a result of liens of title (such as unpaid taxes or utility bills); encroachments onto the property (such as a shed that is located partially on your neighbours property); title defects; errors in surveys; and title fraud. Title fraud is one of most useful protections. Title fraud typically occurs when someone uses your personal information to transfer your house into someone else’s name, gets a mortgage, and disappears with the money.
Title insurance does not protect against everything. Some things title insurance does not protect against are title defects that are known on closing; environmental hazards, native land claims and zoning violations. Note that in some circumstances you can pay an additional fee to receive extended coverage for losses that your standard title insurance policy would not cover against. Title insurance is different than home insurance, and will not protect against non-title issues such flooding, fire and theft.
In a nutshell, a title insurance policy covers a wide range of losses, including fraud, and protects you for the entire length of ownership for a one-time modest fee.
Megan Whelan is an associate at the law firm of Cobb & Jones LLP.